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CIRCULAR No

CIRCULAR No.25/1999/TT-BTC OF MARCH 8, 1999 GUIDING THE SETTLEMENT OF TAX ON CAPITAL CONSTRUCTION WORKS, NEWLY BUILT SHIPS AND SHIP OVERHAULS, WHICH WERE COMPLETED IN 1998 BUT BY DECEMBER 31, 1998, THE PROCEDURES FOR THE PAYMENT THEREFOR HAD NOT BEEN CARRIED OUT

Pursuant to Article 28 of the Law on Value Added Tax; Article 21 of Decree No.28/1998/ND-CP of May 11, 1998 of the Government detailing the implementation of the Law on Value Added Tax and Clause 5, Article 1 of Decree No.102/1998/ND-CP of the Government amending and supplementing a number of Articles of Decree No.28/1998/ND-CP.

In order to remove difficulties confronted by production or construction establishments; the Ministry of Finance hereby guides the application of tax policy to capital construction works, newly built ships and ship overhauls, which were already completed, but by December 31, 1998, the procedures for hand-over and payments therefor had not been carried out, as follows:

I. OBJECTS OF APPLICATION

Subject to this Circular are production or construction establishments that pay value added tax by the tax deduction method and perform the contracts for:

- Capital construction and installation: Including construction and installation projects, project items and work pieces.

- Building or overhaul of sea-going ships and river-coastal ships used for transport of goods, passengers and other special purposes.

Contracts signed before December 31, 1998, which have already been completed but the hand-over procedures for payments between the production or construction establishments (called party B for short) and the customers or investors (called party A for short) have not been carried out, shall be considered having been completed in 1998 and liable to tax at the turnover tax rate.

II. TAX RATES, INVOICES AND THE PROCEDURES FOR TAX DECLARATION, PAYMENT AND ACCOUNTING

1. The tax rate applicable to the objects specified in Section I above shall be the turnover tax rate and calculated on the turnover stated in the payment invoices:

- For construction and installation projects, project items and work pieces which were already completed with contracted supply of materials: 4%, without contracted supply of materials: 6%.

- For sea-going ships and river-coastal ships: For new building: 1%, for overhauls: 2%.

2. The procedures regarding invoices and vouchers:

- The payment invoices billed by production or construction establishments for capital construction projects or ships mentioned in Section I above, must be the value added tax (VAT) invoices. Such invoices shall state the total payment prices which have included turnover tax.

For example

:

Party B bills a payment invoice for the completed capital construction volume to Party A according to the price of 100 million VND determined in the contract signed in 1998, the price shall be determined and VAT invoice shall be billed as follows:

+ Payment price: (clearly stating the value of project or of capital construction volume actually completed in 1998 according to the contractual price or agreed upon by the two parties to pay): 100 million dong.

+ VAT: (this part shall be left unwritten and crossed)

+ Total taxed payment price: 100 million dong.

3. The procedures for tax declaration and payment:

The parties (party A and party B) which are subject to this Circular shall base themselves on VAT invoices to declare and calculate the payable turnover tax amount according to provisions of the Law on Turnover Tax and the documents guiding the implementation thereof, the paying party (party A) shall not be entitled to deduct such tax amount.

4. Accounting and cost-accounting:

Objects specified in Section I of this Circular shall conduct the cost-accounting and final settlement of the results of their capital construction, ship building or overhaul activities as follows:

- The turnover to serve the calculation of income subject to enterprise income tax shall be the payment price already with turnover tax. The accountant shall reflect the turnover tax according to the payment price, writing:

Debit: Accounts 111, 112, 131

Credit: Account 511 (According to the payment price)

- The payable turnover tax shall be deducted to calculate the income subject to enterprise income tax. The payable turnover tax shall be written as follows:

Debit: Account 642

Credit: Account 333.1 (Turnover tax details)

- The units that purchase products or services subject to turnover tax according to stipulations in Section I of this Circular shall be entitled to account the value of capital construction products or newly built ships calculated according to the invoiced payment price which has already been imposed with turnover tax, to serve as basis for calculation of fixed asset depreciation.

III. THE ORDER AND COMPETENCE FOR TAX SETTLEMENT

1. The dossiers and procedures:

a/ The written request of the concerned establishment.

b/ The contract:

- For capital construction activities, it shall be construction and installation contract between party A and party B made strictly according to the capital construction regime.

- For ship building and overhaul, it shall be the economic contract between the customer and the party contracted to build or overhaul ship(s).

c/ The record on inspection and acceptance upon completion of work volume by December 31, 1998:

- For the capital construction activities:

+ In cases where the project was already completed but the hand-over procedures has not been carried out, a record on technical inspection and acceptance is required.

+ In cases where the project was already completed but the record on inspection and acceptance upon completion of work volume and minute on the technical inspection and acceptance have not yet been made, a record on determination of value of completed work volume with party A�s certification is required.

- For the ship building or overhaul services, there must be:

+ The record on technical and quality inspection made by the product quality control section of the concerned unit with the customer�s certification. In cases where there is no customer�s certification, the concerned unit must be authorized by the customer to conduct the technical and quality inspection. Particularly for newly built ships, the registry agency�s certification is required.

+ The record certifying the value of the newly built ship or the value of ship overhaul between party A and party B.

The above dossiers must be the originals, all copies thereof must be certified by the directors of the concerned enterprises.

2. The tax settlement order

Within 10 days after receiving the dossiers, the provincial/municipal tax department shall assume the prime responsibility and coordinate with the Department for management of the State�s capital and property at enterprises in verifying such dossiers, if they deem all the conditions and procedures prescribed in this Circular are fully met, they shall forward such dossiers together with their written comments to the Ministry of Finance (the General Department of Tax).

Within 10 days after receiving the dossiers, the General Department of Tax shall have to complete the procedures then submit such dossiers to the Ministry of Finance for settlement.

IV. ORGANIZATION OF IMPLEMENTATION

This Circular takes effect after its signing and applies to objects specified in Section I of this Circular. For unfinished products which are expected to be completed in 1999, if the concerned units suffer losses due to VAT payment, they shall be considered for reduction of payable VAT according to Article 28 of the VAT Law.

The tax agencies shall have to guide and inspect the implementation and handle things in time till June 30, 1999 at the latest. Any problems arising in the course of implementation shall be reported by the provincial/municipal tax departments and concerned units to the Ministry of Finance for study and settlement.

For the Minister of Finance

Vice Minister

PHAM VAN TRONG